Digital, Commerce & Creative 101: Implementing Electric Vehicle Schemes

Employers are increasingly implementing salary sacrifice EV schemes, and with good reason! Not only can these schemes provide a (welcome) reduction in employer national insurance (NI) costs but they can reduce employee tax and NI, and provide staff with access to healthy discounts on the purchase price of EVs. They are also a convenient way for employers to help staff achieve a greener form of driving and can contribute towards an organisation’s own ESG goals. This type of ‘benefit’ can also be another way to help retain staff and to attract new talent, especially those for whom sustainability is an important factor in their choice of employer.

Of course, little is simple in life, and there are important risks to be mindful of when choosing EV salary sacrifice scheme providers and implementing these schemes. Issues include:

• 1. Structure and complexity: The contractual arrangements used by providers can take different forms but typically involve several documents such as i) a Master Hire Agreement (between provider and employer) usually with numerous schedules dealing with services to be provided (such as repairs and provision of courtesy cars), scheme policies, FAQs and termination policies for employee ‘lifestyle events’; ii) insurance documents; and iii) employee-focused documents, such as salary sacrifice documents (that amend a contract of employment). The structure of these agreements may not be open to negotiation with any one provider, but understanding the implications, and what is ‘market’, is key. In some cases, providers can leave the drafting (and execution) of all employee-facing documents to the employer to arrange - this can be quite a daunting and time consuming task, not least due to having to ensure that relevant obligations are “flowed down” to employees and that the provisions adequately address employment and tax law considerations.
• 2. Financial risk: typically, it is the employer who is on the hook to the provider under the scheme document for loss of and damage to leased vehicles, as well as for any third party property and/or injury to third parties. Now, much of this risk can be mitigated by insurance, or backed-off in an agreement between employer and employee, but not always. Even when it is backed-off on paper with an employee, the prospect of enforcing against an employee is not an attractive option. So, reducing the potential exposure for the employer in its master hire agreement with the provider is key.
• 3.Tax and NI risk: if the salary sacrifice arrangements are not structured correctly, an employer might end up with an unexpected bill from HMRC and/or staff may be unhappy if they receive an unexpected pay deduction or bill from HMRC.
• 4. Change in employee lifestyle: the schemes need to deal in detail with what happens to a lease when an employee leaves their employment (and under what circumstances), or takes a leave of absence (whether for parental leave, illness, sabbatical or otherwise). These situations have different financial implications for employers and employees, such as differing early termination payments, or cash flow issues for an employer who has to continue to make payments to the provider when salary sacrifice payments are not able to be deducted from the employee. These financial implications need to be understood and carefully addressed.
• 5. Insurance: schemes typically require the employer to ensure that insurance is maintained. Some providers offer to arrange insurance, yet the scope of cover offered can vary and providers often wish to control how insurance proceeds are used. Employers also need to understand their potential exposure if an employee acts in a way that breaches the policy conditions (such as drink driving or taking a vehicle outside the UK without permission), which may void the policy or jeopardise an insurance payout, leaving the employer exposed.
• 6. Staff communications journey: the documentation and process needs to be distilled and communicated clearly and in an easily understood manner, so that participating staff are clear of the scheme implications and their responsibilities. Employers will probably also wish to supplement the communications that the provider makes to participating employees with their own communications.

Identifying and implementing the right salary sacrifice EV scheme can have many benefits both for employers and employees, but they deserve careful upfront planning and consideration to avoid driving you around the bend later on!